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Please note that the version of The Communications Market - January 2005 Quarterly Update published on the morning of 01 February 2005 contained incorrect information. The corrected version is now available below.

Key facts

Radio

• Total listening is constant year-on-year at 1.1 million hours in Q3
• Local commercial radio now has its lowest share of listening since 1999 while BBC Network radio has its highest
• 192 applications were received for the new community radio licences
• Scotland has the lowest average listening of the nations and regions while the South West has the highest

Telecoms

• UK residential fixed telecoms prices fell 7% in the year to September
• Mobile retail revenues were up 14% year-on-year largely as a result of volume growth
• Total retail revenues from telecoms services were up 4% in the year to September 2004
• Provisional estimates suggest the number of broadband connections passed six million at the end of 2004; there are now more broadband connections than un-metered dial-up
• Broadband users are more than twice as likely to download music and videos as dial-up users

Television

• Almost 56% of households had digital TV as at the end of September 2004
• Freeview added a net figure of 430,000 households in Q3; pay TV added 89,000
• Digital channels accounted for 28% of all viewing in September 2004
• More than half of all viewers watch at least 15 minutes of digital channels in an average week
• Sky viewers watch more than 12 hours per week of digital channels on average

Introduction

This is the second in a series of quarterly supplements to Ofcom’s annual Communications Market reports, the first of which was published in August 2004.

The Communications Market supports Ofcom’s objective to provide best-in-class research to which stakeholders have regular access. It aims to give a comprehensive picture of the radio, telecommunications and television sectors, with a round-up of recent developments and the latest available data on:

• Industry size, structure and financing;
• Availability, penetration and use of products and services; and
• Consumer attitudes and behaviour.

In addition, we take a closer look at some emerging themes in each sector:

• Radio in the nations and regions;
• Recent UK mobile price trends; and
• Satellite viewing.

Note that the information set out in this report does not represent any proposal or conclusion by Ofcom in respect of the current or future definition of markets and/or the assessment of licence applications or significant market power for the purposes of the Communications Act 2003, the Competition Act 1998 or other relevant legislation.

Ofcom welcomes comment on the content and style of the Communications Market to help inform future publications. Suggestions and queries should be sent to: market.intelligence@ofcom.org.uk.

Executive summary

Radio

The proposed merger of Capital and GWR has overcome two potential hurdles:

• The OFT has decided to seek undertakings from the parties rather than refer the merger to the Competition Commission;
• Ofcom has concluded that no statutory ownership rules would be breached if the merger went ahead, although in the event of the transaction completing intends to vary two GWR licences.

The Local Radio Company has continued to acquire radio stations with both KCR FM and Spirit FM joining its portfolio in recent months. Ofcom awarded its first two FM licences in December and a third in January and received 192 applications for community radio licences.

Total radio listening was constant year-on-year at 1.1 million hours in Q3. However, within the total, local commercial radio now has its lowest share of listening (34.1%) since the new RAJAR system started in 1999 while BBC Network radio now has its highest (43.5%). This is in part due to BBC Radio 2 and BBC Radio Five Live as well as the growth of listening to digital stations.

Estimates suggest DAB digital radio set sales reached 780,000 at the end of September, with the next figures expected to show strong a Christmas. Sales have been driven principally purchases of in-home sets, which were three times higher in August and September than in June and July.

Our radio theme this quarter looks at listening across the UK nations. The widest variations in listening from the UK average tend to occur in the nations. Scotland, at 21.3 hours per listener, has the lowest average listening, although it is an English region, the South West, which has the highest average listening at 24.9 hours. In Northern Ireland the BBC Network stations have a significantly below average share of listening. In particular, the share of listening in Northern Ireland to BBC Radio 2, 3 and 4 is less than a third of their average across the UK.

Telecoms

The final quarter of 2004 was a significant one for the UK telecoms industry with the launch of consumer 3G services from both Vodafone and Orange. 3UK also reported it had passed its licence obligations for roll-out and 3G is now well on the way to becoming fully established in the UK.

Despite reaching close to saturation levels there continues to be growth in the reported number of mobile subscribers. This contributed to strong total revenue growth in the year to September. Average use and revenue per subscriber remains flat however. But while competition and innovation continues to increase, there remains little downward pressure on consumer prices.

Prices for fixed voice services, however, continue to decline helped by increased competition arising from carrier-pre-selection services. Prices for residential fixed voice telecoms fell by around 7% in the year to September. Latest results include the first measure of the impact of BT’s tariff changes which took place in July. These led to a rise in average line rental costs but were more than offset by call price savings across the full spectrum of providers.

Together with the effects of the reduction in mobile termination charges and declining call volumes these changes mean that UK customers now spend more on line rental than on voice calls (geographic and mobile numbers only). Continued competition in the fixed market means that BT’s market share fell to 55% of calls in the quarter to September. At least 30% of lines now take services from a provider other than BT.

The UK broadband market continues to grow apace. While final figures are not available at the time of going to press it seems likely that the total number of broadband connections will have passed the 6 million mark sometime in December. This means that broadband now accounts for 38% of all internet connections and has surpassed the number of un-metered dial-up connections. And, while less directly comparable, the number of broadband lines is now greater than the number of ISDN channels in the UK.

Competition in the broadband arena remains strong and there is a clear trend among ISPs to increase the basic speeds available to consumers. Services are now available in some areas at speeds of up to 8 MB/s. Demand for such speeds seems certain to increase if recent patterns of broadband use are a guide. Latest Ofcom research shows downloading music and video and playing games more than twice as popular among broadband users as dial-up users.

The last few months have also seen the emergence of some combined voice and broadband products and signs that providers are looking to utilise the potential of LLU. ISPs are also now beginning to see VoIP as vital tool in growing their subscriber base.

Television

The UK’s leading broadcasters and platforms have in various ways sought to respond to the challenges and opportunities posed by digital growth over the last few months. Digital TV take-up reached 56% of households at the end of September 2004, with a further significant increase expected in the pre-Christmas period. Digital channels continue to account for an increasing proportion of viewing

The BBC announced a range of proposals to adapt to the “tidal wave of change” imposed by new technologies and changing audience requirements, including a three-year efficiency savings target of £320 million, up to 2,900 job losses, reviews of ownership of some of its commercial assets and a substantial relocation to Manchester.

ITV plc launched ITV3 and indicated its interest in developing further channels over the next few years, possibly starting with a gaming channel. It announced further investment in its interactive services, including a ten-year distribution deal with Teletext for its digital service.

Sky subscriptions continue to increase but growth has slowed in 2004 compared to previous years. The company launched a major marketing campaign to boost subscriptions in the run-up to Christmas, and introduced the second iteration of its Sky+ personal video recorder, with a 160GB hard disk.

The cable operators, NTL and Telewest, simultaneously announced new video-on-demand services in January 2005 – the first mass market launch of services in this area outside the US, according to the operators.

Competition remains fierce in the digital channels sector. Ofcom issued 162 new licences to broadcast TV services in 2004, while 21 were revoked. There are now over 310 channels (including time-shifted “+1” channels but excluding regional variations and PPV channels) broadcasting in the UK.

TV advertising revenues grew by 5.6% in the 12 months to September 2004, according to Mediatel estimates. Growth is expected to continue in 2005/06. The largest sources of advertising spend in the third quarter were motors, financial services and food, which together accounted for over 35% of the total.

The growth of digital TV continues to affect viewing habits. Almost 28% of all viewing was to digital channels in September 2004. ITV1’s share increased in the third quarter, after a strong performance by its September schedule, while the BBC and Channel 4 – boosted by the Olympics and Big Brother respectively over the summer – dropped back.

Sky viewers watch the same amount of TV as others, but their viewing habits are very different. More than half of their viewing in the third quarter was to digital channels, compared to less than one-fifth of Freeview viewing. Sky Sports 1, Sky One, E4 and UKTV Gold were the most viewed channels in Sky homes over the period.

• Quarterly Update January 2005 [pdf]
  998Kb
• The Communications Market - Telecommunications Appendicies [pdf]
  Appendix 1 - Fixed telecoms market data tables - Appendix 2 - Mobile telecoms market data tables

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